manufacturing and service companies are increasingly contracting with specialized information technology firms for their computing and data warehousing needs, spending $7.2 billion on outsourced computer operations in 1990. Others are much more specialized: Dell Computer outsources virtually all its hardware and software components, selling directly to end users through its catalog and website, while the shoe company Reebok owns no manufacturing plants, relying on outside suppliers to make its products. 393–94) words, “does the entrepreneur not organize one less transaction or one more?” Some firms are highly integrated: IBM, for example, produces many of its components and software and maintains its own sales force for mainframe computers. The Coasian framework helps explain not only the existence of the firm, but also its size and scope. The “transaction cost” theory of the firm introduced by Coase (1937) has become a standard framework for the study of institutional arrangements.
